A single fund of funds for all investments?

dunstonh

What sectors do FoF's tend be be weak in - property, or other things too?

Lets take Jupiter Merlin income portfolio. A good fund and one you would be happy with if FoF is what you want.

UK Equities 48.7%

Artemis Income
AXA Framlington Equity Income
AXA Framlington Monthly Income
INVESCO Perpetual Income
Jupiter Income
Jupiter UK Growth
Rathbone Income

Other Equity 9.4%

JGF – Jupiter Global Financials
Jupiter Japan Income
Resolution Argonaut European Income

Fixed Interest 27.6%

AXA Framlington Managed Income
Old Mutual Corporate Bond
Royal London Sterling Extra Yield Bond Fund

Thames River High Income

A little bit of European and Japan. Where is US, Far east exc japan, Global Specialist (Russia, global property, Latin America, china etc), emerging markets, UK property?

The TER is 2.48%. That is high and you can build your own sector allocated portfolio with a TER no more than 1.75%. Indeed, if you picked the funds listed above yourself you would pay less. You wouldn't benefit from ongoing rebalancing on fund switching though.

Apologies, but what is an 'NMA' IFA - and how do I find one? Do I face a similar range of abilities as I would with FoF managers - and if so, is there any way of finding out which are particularly good (such as yourself!)

NMA - new model adviser. Its one of the business models for IFAs. IFAs are not all the same. You get those that specialise in corporate or investments, or mortgages or estate planning (and other areas) or you get general practitioners. You dont want to be seeing a GP IFA or an IFA that does mostly mortgages when you do an investment. They can do it but do you really want to get advice from someone that may only deal with one investment case a month but does 5-6 mortgages a week?

You also get different business models. Some rely on initial commission and are transactional based. In other words, they rely on signing up business to earn money (old model). NMA gets the bulk of the income from having funds under their management. The more the funds go up, the more the IFA gets paid. If funds go down, the IFA gets paid less. If you fall out with that IFA, you can transfer to another NMA IFA and they will get paid ongoing for the service unlike old model where the commission is up front and nothing paid on performance. Its a cheaper business model as well with most NMAs (although those with plush offices in central london wont be as cheap as those out in the sticks).

You say IFAs are usually cheaper - could you give a ball-park figure?

SOME would be the better way of putting that. Some would be more expensive as well.

If you pick Unit Trusts, OEICs and SICAVs (inside or outside of ISA) then the typical commission is 3% upfront and then 0.5% p.a. for the life of the contract. An NMA adviser can be 1% plus that 0.5%p.a. That 0.5% isnt incremental. its part of that 1.5% annual management charge you see on unit trusts. If you buy that Jupiter fund direct from Jupiter for example, then they keep the 0.5% for themselves.

So, a maximum commission adviser would charge 3% for advice. An NMA adviser 1%. The FSA publish averages every 6 months and IFAs are currently taking on average 1.8%.

So, when you get advice, you should be aiming for 1.8% initial charge or less. Now, is that 1.8% good value? If you get a recommendation for a sector allocated portfolio, valuations on demand, periodic rebalancing reports and information, then if its only cost you 1.8% up front, then thats not too bad. If you get none of that and its cost you 3% then its not good value.

What do you think about investment trusts?

A lot of them IFAs are not authorised to recommend as they are outside of the scope of FSA authorisation for financial advisers. Packaged investment trusts can be authorised. Because of that, I dont use them hardly at all (about 3 times in the last 12 months). Its a case of sticking to what you know and nowadays with OEICS, UTs and SICAVs (lets call them investment funds for east) you dont need to bother with ITs as the investment funds are wide ranging. Plus, the data available on investment funds is very high in quality, easily accessible and the information integrates with IFA back office sofware for reporting purposes (valuation reports etc). Also, you tend to find that the equivalent unit trust is lower risk than the investment trust.

There was once a place for ITs but they are slowly losing the battle. Probably because of the move to OEICs from Unit Trusts as well as the marketing strength of the fund providers.

EdInvestor

There was once a place for ITs but they are slowly losing the battle.

ITs suit investors with share portfolios better than funds as they are listed and thus the investor's structural setup (online broker rather than fund supermarket) will be optimal for buying and selling the product. ETFs are the same, compared with index tracker funds.

It would be interesting to see a few facts about growth in the different products - certainly there are a lot more ITs than there were, if you ignore splits.The offshore property trust group is now quite big.

There is a kind of "parallel universe" out there, with people tending to invest either in shares, ITs and ETFs or in unit trusts/Oeics and trackers.

Obviously the first group tends to be execution only and the second group advised.There would seem to be quite rapid growth on the execution only side, the HL flotation is one example.I see Sippdeal now has 3bn quid under management and is taking 120m in new money a month.

Can the OP give an indication of his attitude to risk?This is the basic thing to determine. Once determined, a large quantity of the available funds can be eliminated immediately.:)

dunstonh

Obviously the first group tends to be execution only and the second group advised.There would seem to be quite rapid growth on the execution only side, the HL flotation is one example.I see Sippdeal now has 3bn quid under management and is taking 120m in new money a month.

Most of that is going into unit trusts rather than ITs etc.

Can the OP give an indication of his attitude to risk?This is the basic thing to determine. Once determined, a large quantity of the available funds can be eliminated immediately

Why would it eliminate a large quantity of funds? A portfolio even for a cautious investor would include higher risk funds.

cheerfulcat

There was once a place for ITs but they are slowly losing the battle. Probably because of the move to OEICs from Unit Trusts as well as the marketing strength of the fund providers.

dh, the OP asked for a single fund; AFAIK there is no single UT or OEIC that can do what a global growth IT does, namely hold a diverse selection of asset classes and sectors within one portfolio. I don't think that it is right to dismiss ITs so lightly.

dunstonh

I don't think that it is right to dismiss ITs so lightly.

It really comes down to which camp you are in. I prefer unit trusts/oeics. Others prefer IT.

Some copy and paste snippets:

Investment trusts are riskier than unit trusts, but as a result potentially more rewarding as well. If you buy an investment trust at a 10% discount, you are buying £1 worth of assets for 90p. If demand for the trust's shares should rise, then this discount could close, giving you an extra boost. But if investment trust shares became less popular, the gap could widen. In a falling market, you could get a double whammy, as asset prices fall, and your loss is made worse by a widening of the discount.

Unlike unit trusts investment trusts are very cheap to buy. Since they do not pay commission to middlemen you do not lose 5% or 6% of your investment in up-front fees, as you do with unit trusts. This is an excellent deal for private investors. Instead, buying charges are often as little as 0.5%, or even a flat £10 or so. You may, however, have to pay a small annual fee of around £25 or higher for an [URL="javascript:self.name='main';PopUp('you_popup','/pages/jargon/index.html?in_jargon_term=Isa','350','150')"]Isa[/URL] wrapper for your fund.

To a large extent investment trusts, unit trusts and Oeics aim to do the same things, but there are several key differences.
Investment trusts are stock market-quoted companies in their own right with a fixed number of shares in issue. The price of an investment trust share does not just depend on the value of the shares in other companies which it holds - it also depends on the demand for the trust shares themselves. This sounds strange, but in practice, most investment trusts are worth less (if you add up the entire value of their shares) than the value of they shares they own. This is called the discount - and the average tends to be around 15%.
Oeics and unit trusts on the other hand are open-ended investments. The number of shares or units is not fixed. Unit trusts entitle an investor to participate in the assets of the trust without actually owning those assets. Investors in an [URL="javascript:self.name='main';PopUp('you_popup','/pages/jargon/index.html?in_jargon_term=Oeic','350','150')"]Oeic[/URL], meanwhile, buy shares in that investment company.

cheerfulcat

I've said all that...

Andy1663

Some very useful stuff - even if it is less clear-cut than I'd hoped:rolleyes:

Edinvestor
I'm happy with high risk for the SIPP (its supplementary to a final salary scheme, and I won't draw it for 25 years) + low risk for the ISA (I plan for it to be there for more than 10 years, but might be needed in an emergency), although if I had a variety of funds I'd be happy to put 25% on a high risk punt. (Thus my original thought of Jupiter Merlin Growth (or is an income fund better?!) for the SIPP and Midas Income for the ISA)

From the coments I'm not sure if ITs are quality funds that can typically take a longer term view than OEICs, or uncompetitive and on the way out? Do they look like they'll still be going strong in say 20 years time?

dunstonh
How close does the Midas fund (and I notice a Fidelity 'all terrain' fund advertised this weekend) come to balanced portfolio in one fund? And are there any other funds that come close to the 'balanced' ideal, even if not perfect?

I think there's another thread about relative cost, but since many fund supermarkets seems to discount all the initial cost, I wonder if IFAs are comparitively a little more expansive than your calculation?

I think my fundamental question/issue is: if I have to put together a balanced portfolio for my needs, I assume that a full time fund manager team with full flexibility will make better choices about allocation than me, and I guess all but the most expert IFAs. (+ am I right that in a single fund allocations can be fine tuned e.g. increase property holdings from 5 to 8%, whereas with discreet funds I have to buy in big chunks e.g. a whole property fund?) Thus trying to find a single fund that can do it all (or at least most of it) at my risk level seems pretty attractive. Or have I got this wrong? From what I can see ITs may come closer to this ideal that UTs?

Thanks again. Andy

dunstonh

I think there's another thread about relative cost, but since many fund supermarkets seems to discount all the initial cost, I wonder if IFAs are comparitively a little more expansive than your calculation?

IFAs use fund supermarkets. For example, if you go to Fidelity FNW yourself, then you are getting the same terms as an IFA would give you potentially. Buy through someone like Smile and Fid FNW is more expensive and you dont get advice either.

If you take an NMA adviser charing 1%, then say over over years its less than 0.1% that the advice has cost you. Even at FSA average of 1.8%, that is still not much. The TER with advice cost built in using 1.75% or lower funds is cheaper than the higher TER on the FoFs.

How close does the Midas fund (and I notice a Fidelity 'all terrain' fund advertised this weekend) come to balanced portfolio in one fund? And are there any other funds that come close to the 'balanced' ideal, even if not perfect?

I havent checked recently and I cant right now. I doubt it offers what I would class as enough.

Thus trying to find a single fund that can do it all (or at least most of it) at my risk level seems pretty attractive. Or have I got this wrong?

I said earlier and I will stick with the view that its not going to be the best solution but its the second best.

From what I can see ITs may come closer to this ideal that UTs?

CC may well be right on that front and it be the case. As long as you factor in that an IT in the same sector as a UT is a little higher in risk.

cheerfulcat

Andy1663 wrote:

From the coments I'm not sure if ITs are quality funds that can typically take a longer term view than OEICs, or uncompetitive and on the way out? Do they look like they'll still be going strong in say 20 years time?

ITs as a group have been around for a lot longer than UTs; I don't think that there are many unit trusts more than 10 - 15 years old, whereas some ITs are 100 years old and more. They are quality funds; many fund houses run IT mirror funds of their UTs, with the same managers. They can take a longer view because 1) they are run as companies with the shareholders in mind and 2) unlike UTs, they don't have to sell holdings when investors want out, which means that a manager can manage with conviction. However, ITs do not pay commission; this may be why IFAs tend not to bother with them.

I think my fundamental question/issue is: if I have to put together a balanced portfolio for my needs, I assume that a full time fund manager team with full flexibility will make better choices about allocation than me, and I guess all but the most expert IFAs.

I think that this is an incorrect assumption, because to my mind the best person to look after your money is you! But if you lack the time or inclination to do the research required to hold shares directly then a collective investment makes sense.

am I right that in a single fund allocations can be fine tuned e.g. increase property holdings from 5 to 8%, whereas with discreet funds I have to buy in big chunks e.g. a whole property fund?) Thus trying to find a single fund that can do it all (or at least most of it) at my risk level seems pretty attractive. Or have I got this wrong? From what I can see ITs may come closer to this ideal that UTs?

Yes, that's exactly right. A global growth IT manager will tweak allocations within the fund as s/he thinks necessary. I wouldn't normally bang on about ITs but I think that they are exactly what you are looking for.

EdInvestor

am I right that in a single fund allocations can be fine tuned e.g. increase property holdings from 5 to 8%, whereas with discreet funds I have to buy in big chunks e.g. a whole property fund?) Thus trying to find a single fund that can do it all (or at least most of it) at my risk level seems pretty attractive.

Do bear one thing in mind:funds operate according to a benchmark related to their sector.So a "balanced managed fund" will have a minimum of x percent in equities y per cent in bonds z per cent in property at all times.

While there can be fine tuning around the percentages,it doesn't amount to much.If the market has a major crash, and the fund is benchmarked 70-80% in equities, it will crash too.The manager is not allowed to sell the equities and park your money in cash for the duration.

It's up to you to sell the fund and convert your money to cash, if that's what you think needs doing.The fund manager won't do it for you.

BTW, Sipps and ISAs don't carry any risk, they are just tax wrappers.The risk is in the investments within the Sipp/ISA - the shares,bonds, funds, trusts or whatever you put your money into.